Court Halts Overtime Rule

Author: Michael Cardman, XpertHR Legal Editor

November 23, 2016

UPDATE - December 1, 2016: The US Department of Labor (DOL) has appealed to the 5th US Circuit Court of Appeals to overturn the injunction.

UPDATE - December 5, 2016: The US Department of Labor (DOL) has petitioned the 5th Circuit for an expedited briefing and oral arguments.

UPDATE - December 8, 2016: The US Department of Labor (DOL) granted the DOL's request for an expedited appeal.

A federal court has blocked the new overtime rule from the US Department of Labor (DOL).

The US District Court for the Eastern District of Texas on November 22 issued a preliminary injunction that prevents the DOL from implementing and enforcing the rule.

Originally scheduled to take effect December 1, the rule would have roughly doubled from $23,660 to $47,476 the minimum salary needed for many employees to be exempt from the overtime requirements of the Fair Labor Standards Act (FLSA).

The court said the DOL exceeded its authority by raising the minimum salary level so high that it effectively would make the duties tests - which outline the types of work that employees must perform (in addition to being paid a minimum salary) to qualify for an overtime exemption - irrelevant.

What Lies Ahead

Because the injunction is preliminary, not permanent, "there still is a possibility that the rule could go forward," said Jonathan A. Segal, a partner at Duane Morris LLP. "I don't think it's likely, but it's a possibility."

The DOL could immediately appeal the preliminary injunction - and, potentially, any permanent injunction to follow - to the 5th US Circuit Court of Appeals. In a statement, the DOL said it is "currently considering all of our legal options."

If the DOL decides to appeal, it would need to petition the 5th Circuit for an expedited hearing on the grounds that the Trump administration would drop the appeal once it takes power on January 20. Although many observers expect that to be true, providing evidence in court could prove more difficult, according to Eric R. Magnus, a Principal in the Atlanta office of Jackson Lewis. "We're in Bush v. Gore territory here," where the law and politics intersect, he said.

Even if the 5th Circuit were to grant an expedited hearing, it rarely overturns preliminary injunctions, according to the Seyfarth Shaw Wage & Hour Litigation Practice Group.

Further, even if the 5th Circuit were to overturn the district court's injunction, Congress could override the rule anyway. The website Politico has reported that Congress may adjourn early so that it can overturn the rule under a law called the Congressional Review Act.

Implications for Employers

For the time being, employers will no longer need to comply with the rule on December 1.

Employers that had planned to reclassify salaried, exempt employees who earned between $23,660 and $47,476 as hourly, nonexempt employees can simply maintain their current pay practices. However, Magnus cautioned that they should start tracking those employees' hours because if the preliminary injunction is overturned, the plaintiffs' bar will argue that the DOL's overtime rule should have applied retroactively to December 1.

Employers that increased, or planned to increase, exempt employees' salaries to $47,476 to maintain their exempt status would be within their rights to rescind those raises (but not recoup any increased salary already paid). However, taking this route would undoubtedly create some employee relations problems.

Magnus said employers that take away raises could make up the difference with a performance-based bonus, thereby minimizing hurt feelings while incentivizing productivity. "That way you at least get something out of it."

Segal also suggested a one-time "disappointment bonus" that could assuage employees without the annual recurring labor costs that result from a raise.

Whatever course employers decide to take, employee communications will be crucial. Segal said employers should stress that any changes are being made in response to legal and regulatory developments beyond their control, and bear in mind that communications can be in person.

"Remember there's something called talking," he said. "Meet with employees and explain it."